Preface

Tether's USDT, the leading dollar-pegged stablecoin globally, has seen its market value diminish considerably over the past week, marking the most significant drop in two years. This downturn has raised concerns about market volatility. Several European Union-based exchanges and Coinbase have removed USDT for compliance reasons with the EU's Markets in Crypto-Assets (MiCA) regulations, effective December 30. The stablecoin market faces challenges as these regulations take full effect.

Lazy bag

USDT's market cap fell over 1% to $137.24 billion this week, the largest decline since FTX crash in 2022. MiCA compliance issues led to exchange removals.

Main Body

Tether's USDT, which stands as a pivotal stablecoin pegged to the US dollar, has undergone a notable reduction in market capitalization, slipping over 1% to $137.24 billion this week. This drop represents the steepest decline since the catastrophic collapse of the FTX exchange in November 2022. Statistically, USDT had reached a record market value of $140.72 billion by mid-December.

This decline was influenced significantly by decisions from various European Union-based exchanges and the prominent platform Coinbase, which opted to delist USDT. This action was necessary to align with the EU's newly enforced Markets in Crypto-Assets (MiCA) regulations. Despite these regulations specifically governing stablecoins being established six months earlier, the full spectrum of MiCA took effect on December 30.

Under MiCA, stablecoin issuers must secure a license to offer or trade asset-referenced tokens (ARTs) or e-money tokens (EMTs) within the EU bloc publicly. ARTs are crypto assets maintaining a stable evaluation by referencing another asset. EMTs, like USDT, reference a single national currency (the dollar).

While EU-based investors can retain USDT in non-custodial wallets, they encounter restrictions from trading on centralized exchanges conforming with MiCA. Given USDT's pivotal role as a gateway to the crypto market—fueling both spot cryptocurrency purchases and derivatives trades—the delistings and consequential dip in market value have fueled speculation over potential further market instability on social media platforms.

Nevertheless, experts argue that these fears may lack basis and the adverse effects could possibly be confined to the eurozone. Karen Tang, leading APAC partnerships at Orderly Network, asserted that though restrictions in the EU arise, USDT's predominance in global crypto trades remains unthreatened. Tang highlighted that Asia and the U.S. contribute the majority of crypto trading volumes, implying that the EU's delisting minimally impacts the broader global market.

Supporting this viewpoint, industry analyst Bitblaze pointed out that Asia accounts for a significant portion of Tether's trading activities, indicating that the MiCA-driven delistings in Europe would likely have a subdued effect. As Tether has preemptively invested in firms like StablR and Quantoz Payments to align with MiCA, it reflects their intent to navigate regulations proactively.

Key Insights Table